This profile is an excerpt from What Carlota Perez Saw at the Revolution, which appears in Hacking Finance, No. 1: Movement. Buy the issue
During her career mapping the rise and fall of innovation and its impact on the world economy, her theories have been tested, and so, too, has she. Now, as Perez approaches her 80th birthday, her main focus is on a target that, in the minds of many, might seem antithetical to innovation: The State.
“An intelligent, active State,” is what she believes we need at this moment in the information revolution. A public engine not just powering innovation, but also empowering its citizens to seize its opportunities and reap its benefits.
Perez is a professor of technology and development at three British universities—London School of Economics, University College London, and the University of Sussex—and one, the Tallinn University of Technology, in Estonia. She pushes aside my attempts to categorize her further, as an “economist” or a “sociologist.” She is, though, both of those things, as well as a historian and a political scientist. She is, in a word, an interdisciplinarian—drawing from all of the above, and more, to understand how we can harness the power of technology to make a better world.
Perez is most well-known as the author of Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages, a sweeping text that tracks the impact of finance on the world’s most seismic technological shifts: canals, railways, petroleum, the automobile, the assembly line, and the internet. Sixteen years after its release, the book is still one of Amazon’s top microeconomics titles, selling more in Silicon Valley than anywhere else.
According to Perez’s theory of “great surges,” a tech boom transforms the world’s economy much sooner than it does its way of life or government policies—and, until that happens, much of society is left behind.
We are now once again at a crucial turning point—as she calls these post-bubble recessions. And the only thing that is going to get us out of it? That’s right: “a proactive State.”
At first, I can’t help but feel skeptical. To me, and many of my friends who came of age after the market liberalization of the 1980s, it seems as if technology has enabled some of the most successful entrepreneurs to thrive despite the State, rather than thanks to it.
The idea of a “Golden Age” has a patina, I tell her. It conjures a kind of film-reel image of postwar America: men doing hard, methodical, and boring work on an assembly line. Women at home. The suburbs. Conservatism. Images that fuel the backward-seeming politics of our day.
But that’s the point, she says. The idea that the State would just behave like in the “good old days” is like believing that a return to coal will make the economy “great again.” The way we live, and the way government behaves, must adapt to the logic of the new technology.
We’ve been here before, she says, pointing to past Golden Ages: Britain’s Victorian-era prosperity—after its Hungry Forties— was ushered in after the collapse of railway mania. Similarly, mass consumption and the rise of the American middle class in the 1950s was shaped by the Welfare State, after the despair of the Great Depression. “We are in the equivalent of the 1930s,” she says.
That much, to me, rings very true.
“I know it’s possible to shape these technologies towards a global, sustainable golden age,” says Perez. “But I also know that it is politically difficult.” To get there will take the same dynamic thinking about networks that drive the world’s most successful startups: a raft of institutional innovations in relation to the social safety net, the direction of taxation, education, infrastructures, citizen participation, public services, and information.
It’s a tall order. But then, “I’m the most pessimistic optimist you’ll ever meet,” she says. “I’m not proposing that we do something that is nice. I’m proposing that we do something that’s urgent.”
Technology comes with a logic
Perez was born in 1939, in Venezuela’s capital city of Caracas, just weeks after the start of World War II. At the time, demand for oil was ratcheting ever higher, with Venezuela trailing only the United States and the Soviet Union in oil production.
The eldest of five children raised by a civil engineer father and an artist mother, Perez had a comfortable, middle-class life—“a good life,” she says—buoyed by the strong bolívar. The family moved often; by the time Perez set off for university, in 1957, she had been in five different primary schools, and four secondary schools—the last being a Catholic boarding school in the United States.
Perez studied architecture, marrying both of her parents’ interests—first at the Illinois Institute of Technology, as a disciple of modernist giant Ludwig Mies van der Rohe. When she realized that his buildings didn’t make sense for the tropical climate back home, she transferred to Pratt Institute, in Brooklyn.
On one summer visit home, Perez saw the new Polar Building—Venezuela’s first glass and steel building. Or “the first and last glass and steel building,” as she assumed, standing in the scorching heat of Caracas’ midday sun. But within a few years, the capital city was filled with them.
Watching this shift was a revelation: “It is not that we design what we want, or what makes sense,” says Perez. “It’s that there is a force that shapes your decisions in order to enjoy the synergy of the times.” In her writing, she calls this a “techno-economic paradigm—a shared common-sense model for innovation and also for consumption.”
Perez returned to Venezuela married to an American architect, planning to continue her studies. She became politically engaged, she says, and ended up divorcing her husband—and also architecture.
But several years of political organizing, earning her living doing odd jobs, left Perez with even more questions: Why did people do what they did, vote the way they did? Why was development so difficult? In her graduate work—first in Paris, and later, in San Francisco—she would pursue an interdisciplinary course of study in order to answer them.
The theory of Great Surges
After her studies in Paris, Perez returned home to work as a researcher, first at the Central University of Venezuela and later the National Institute of Foreign Trade (ICE in Spanish), a government think tank in charge of international trade policy and negotiation. She later worked as a consultant with Venezuela’s Ministry of Industry, tasked with designing, and later directing a Department of Technological Development.
In those days, “oil was involved in every single technology,” says Perez. “It was fuel and electricity, but it was also plastics and countless other petrochemicals.” Protected import substitution—common in Latin American countries at the time—put domestic production behind tariff barriers. But while the high tariffs had created jobs and demand for services, they also disincentivized innovation and stoked corruption.
The prevailing attitude was, as one Fortune magazine article put it, that oil was “too cheap to worry about.” But Perez knew that so long as access to cheap sources was limited—and she believed it would continue to be so—prices would be pushed higher, and this would change the direction of technology.
Seeing an article in Businessweek about Intel’s first microprocessor—a computer that could exist on the tip of a finger, rather than in a massive, air-conditioned room—she realized, “That was it!” Cheap oil was going to be replaced by cheap microelectronics as the new common sense for innovation and consumption.
At the Ministry of Industry, Perez focused on helping local electronics entrepreneurs—many of whom got their Ph.D.s alongside the era’s most well-known Silicon Valley upstarts, at the likes of UC Berkeley, Stanford, or MIT—develop and implement their ideas. Her team also undertook a comprehensive technology audit of the national aluminum industry, and worked on a electronic national registry of products and services, designed to help public companies buy national products. In 1981, she launched FINTEC, the country’s first venture capital fund.
But there was a cliff between what the government wanted to achieve and the risks they were willing to take. In her first major publication, Perez would call this a “mismatch.” In order for a new set of technologies to be deployed successfully, both the companies and the governments would have to change their strategies and forms of operation.
“I understood the transformation that was happening, but I found that everything was designed for the past model, and it was not moveable,” she says. “It was meant to stay that way, because people had been trained for that.”
Perez’s experiences with FINTEC made her conscious of the role finance played in innovation. Later, while observing the dot-com boom of the late 1990s, she saw the ways in which finance was driving the information revolution. From there, it was easy for her to identify the same pattern in the canal and railway manias, and in the Roaring ’20s.
Perez’s waves of technological development, which she calls “great surges,” each had two different prosperities—one a financial boom, the other a Golden Age—and a crash in the middle. When she realized how different this was from the models of Nicolas Kondratiev and Joseph Schumpeter, which saw boom and decline in a single, extended cycle, she knew she had to write a book. The result, Technological Revolutions and Financial Capital, was published in 2002.
The book was particularly impactful for people in Silicon Valley, “who felt that I explained what had hit them,” says Perez. She began consulting for companies such as IBM, Ericsson, and Cisco; giving keynote speeches at events; explaining the nature of technological revolutions and how one could learn from their history.
Toward a new Golden Age
In the epilogue to Technological Revolutions and Financial Capital, Perez wrote that the world was at “the turning point,” in the wake of the 2000 NASDAQ crash and 9/11. In the years after the book’s release, Perez began anticipating another crash; by 2007, she knew it was inevitable. Then came the subprime mortgage crisis, and the collapse of Lehman Brothers: “A long stagnation like the 1930s,” she says. “Fortunately not a depression, but with the same phenomena—anger and extremism, fascism, populist leaders at both extremes, and people following them in the hope of straightening out their lives.”
This time around, the turning point is taking much longer than usual. That is for many reasons, she says, one of which is that many politicians and economists “have not registered that finance has decoupled from the real economy and that the tech giants have created a triumphant world of their own, while the bulk of society barely manages.”
Which brings us back to the State. Now that we know what these technologies can do, governments must guide the economy in a win-win direction, says Perez: “Deep organizational changes are needed—as deep as those that have transformed company strategies.”
About four years ago, she began incorporating these ideas from her articles and lectures into a new book-length project called Beyond the Technological Revolution. The goal has become increasingly urgent: “to learn from history to reverse inequality, avoid jobless growth, and counter the populist threat.”
Her new work focuses on ways in which the State has to tilt the playing field. She points to the mass-production revolution, when the U.S. government incentivized suburban homeownership. It was “a positive sum game,” she says—not just about helping people get homes, but also about helping developers and banks make money. Getting to a new Golden Age will once again require a dramatic lifestyle shift, says Perez. “And creating it will require making it aspirational and attainable for the many currently left behind.”
The people driving innovation in the private sector will need to be part of the solution, she says. “Governments need to attract the best people—creative people. As Mariana Mazzucato holds, the State has been entrepreneurial in the past; it must be so more than ever now.”
With a strong connection between their work, Perez talks frequently with Mazzucato, the director and founder of the Institute for Innovation and Public Purpose (IIPP) at University College London, and author of The Value of Everything: Making and Taking in the Global Economy.
“We are kind of each other’s best friends and strongest collaborators,” says Mazzucato. “What defines her is that intellectually she is different—she’s able to combine the theory and the details—and, as a person, she is different, with a mix of political experience, academic experience, and life experience.”
Indeed, the power of Perez’s work is the context she provides. “I don’t say, ‘This is what you have to do,’” she tells me. “I make the parallels and say, ‘This is normal. It happens to be you that has the big shift to make now, but other people have had to make it before.’”
